Pakistan’s large-scale manufacturing (LSM) sector continued to face headwinds in first ten months of this fiscal year (July 2024–April 2025), contracting by 1.52 per cent year-on-year, according to the Pakistan Bureau of Statistics (PBS). The decline reflects ongoing challenges in key industries such as food, chemicals, iron and steel.

However, textile manufacturing — the largest component of LSM — registered a modest growth of 0.49pc in the same period. The improvement was driven by a 0.91pc rise in wearing apparel outputs, while cotton yarn and cloth production remained relatively subdued. This suggests a gradual but welcome shift towards value-added textile segments despite broader industrial sluggishness.

Pakistan’s textile exports are also showing signs of recovery in FY25, with the sector accounting for 55.4pc of total exports during the first 11MFY25 (July 2024–May 2025), up from 54.3pc in FY24. Textile shipments stood at $16.37 billion in the mentioned period, out of total exports worth $29.56bn, the latest PBS data reveal.

This marks a 7.4pc year-on-year growth, led by impressive gains in value-added segments such as knitwear, readymade garments, and bedding. Although textile exports dipped 1.75pc year-on-year in May 2025 to $1.53bn, the month still posted a robust 25.4pc rebound over April, signalling renewed demand in key international markets. This uptick is being attributed to a more favourable global trade outlook, consistent energy availability, and anticipation of a potential US–Pakistan tariff deal that could revive competitiveness.

As shipments account for 55.4pc of total exports in 11MFY25, the sector’s continued growth depends on shifting from commodity yarns to finished garments and specialty textiles

For now, these gains unfold under the looming shadow of steep US tariffs. President Trump’s “Liberation Day“ tariff policy imposed an additional 29pc duty on Pakistani exports, atop a baseline 10pc global tariff — elevating the effective US duty on Pakistani textiles to nearly 39pc.

The Pakistan Institute of Development Economics estimates these measures could slash Pakistan’s textile exports to the US by 20–25pc, translating into annual losses of $1.1–1.4bn, with textiles absorbing the heaviest blow.

In response, Pakistan has engaged in bilateral negotiations aimed at securing tariff relief. According to Reuters, both countries are moving toward finalising reciprocal trade terms. A favourable deal could reduce barriers offering exporters much-needed breathing space.

Textile exports stood at $16.37bn in the 11 months of FY25 out of total exports worth $29.56bn, the latest PBS data reveal

The urgency is clear: heavy reliance on a single product category in one key market is risky. In FY24, Pakistan’s textiles exports to the US reached $5bn representing 92pc of its overall exports to that country. With traditional destinations like the US, the European Union, and the UK facing economic headwinds and increasing compliance pressures, Pakistani exporters are actively turning to non-traditional markets. Promising frontiers now include Russia, Central Asia, the Gulf, Africa, and South America, especially for value-added textiles like garments, home furnishings, and technical fabrics.

Experts note Russia’s growing presence in Pakistan’s shipment portfolio, while the Gulf’s appetite for luxury and modest fashion is rising. Meanwhile, African and South American countries — with their expanding middle classes and limited domestic production — offer a fresh avenue for cotton-based apparel and linens. Ongoing trade talks with the Gulf Cooperation Council and the Association of Southeast Asian Nations could help remove entry barriers and enhance market access.

Exporters are being advised to shift toward compliance-driven, digitally traceable, and sustainability-aligned products to gain market share in regions like East Asia and Oceania. Simultaneously, there’s an emphasis on participation in international expos and building brand equity to elevate Pakistan’s textile image globally.

Still, deep structural challenges remain. High energy costs, outdated machinery, fragmented regulations, and administrative inefficiencies continue to erode competitiveness.

To restore margins, Pakistan must urgently streamline policies, modernise production, reduce input costs, and accelerate trade agreements — including deepening the China–Pakistan free trade agreement (FTA).

Pakistan stands at an inflection point. The erosion of legacy advantages in textiles could either be a turning point toward renewed relevance or a slide into further marginalisation, depending on the clarity and speed of response from both policymakers and industry players.

Securing a favourable US trade deal is critical. A rollback of punitive tariffs could safeguard up to $1.4bn in annual exports and provide much-needed relief to an already strained sector. At the same time, export diversification is no longer optional; it’s imperative. Even China and Bangladesh could absorb Pakistan’s textile overflow, provided Pakistan adapts with tailored, high-quality product lines. Markets like the GCC favour customisation and high-end finishes, and this is where Pakistan must now focus.

The sector’s future lies in shifting from commodity yarns to finished garments and specialty textiles.

Finally, lowering the burden of energy, logistics, and regulatory bottlenecks could reignite Pakistan’s export engine. Pakistan’s textile narrative is changing. Legacy strengths are fading. To stay in the game, the country must now embrace export diversification, product sophistication, and cost innovation, all while securing tariff relief that may well determine the sector’s survival and resurgence.

Published in Dawn, The Business and Finance Weekly, June 30th, 2025